What about the Children?
Invariably, as much as our clients genuinely want to give, ultimately it becomes a two pronged financial decision.
The first question is ... "Do I have enough means to give?" Reading through our web site amply demonstrates that there are many giving strategies, even for those with modest means, which can make a tremendous difference.
The second question is ... "But my children will be unhappy with me! They need my support too. If they see their inheritance going to charity, they won't understand." A major disincentive to giving is the perception that they are taking away from support for their children.
At Transitions Wealth Strategies, we show our clients that they can give to charity without taking anything away from what they want to leave to their children. With some simple planning they can achieve both goals.
Usually we will address this issue with our clients when they are seriously thinking through their retirement and estate plans. They have expressed a desire to give back but wish to preserve their estate to provide for their children. We show them that both goals can be achieved. A cash amount is determined that the client wishes to give to charity either annually or on a one time basis. The charitable tax credit creates a tax refund reducing taxes that would otherwise have to be paid to the CRA. The tax money saved is then used to fund a life insurance policy that will pay back the entire donated amount at the time of the client's passing. The estate is preserved for the children. An example will clearly show what can be achieved.
Say a 60 year old couple is coping with a parent who is suffering from the early onset of Alzheimer's disease. The shocking reality of this disease has not only caused the couple to reassess their own retirement plans but also inspired them to support those that are suffering from this disease. They have decided to both retire later this year. They would like to give part of their retirement compensation to the Alzheimer's Society if it does not take away significantly from what they would ultimately like to leave to their children. As they will have a larger than normal tax bill this year, they know they will be able to take full advantage of the charitable tax credit.
Here is how all their goals can be accomplished. The couple establishes that they would like to give $50,000 to the Alzheimer's Society. This gift will create a $23,000 charitable tax credit. Planning to preserve their estate for their children, the couple takes out a $50,000 joint-last-to-die Universal Life policy on their lives with the $700 annual premium funded from the tax refund created by the $23,000 charitable tax credit. If the couple pass away at age 80, the insurance policy will pay back the $50,000 donated entirely. The $23,000 tax refund will more than cover the $14,000 in life insurance premiums paid for over the 20 years.
In summary, all the couple's goals have been achieved. They have given a $50,000 immediate gift to the Alzheimer's Society. The amount of the donation has been completely refunded to their estate to support their children with the added benefit of being probate free. They will have funded the insurance premiums entirely from money that otherwise would have been lost to taxes and still kept $9,000 of the tax refund for other personal uses.
There are many alternative versions of this strategy. It can easily be accomplished even by those with more modest means with smaller donated amounts. You truly can make a huge difference and give back without affecting what you are leaving for the children. Contact us and we'll evaluate what giving strategy meets your charitable giving goals and financial plans most effectively.
